We’ve already seen a number of films in which the protagonist is an investment banker who exudes power and wealth. However, no matter how many films we saw, none of them did a good job of portraying the investment banking industry.
Despite investment banking being one of the most sought jobs, we never get a clear picture of what they truly do beyond being quick-witted and wealthy. We’ll go through what investment bankers actually perform in this article to offer you a better understanding of their job! Continue reading to learn more!
How do you define an investment banker?
Someone who works for a large financial institution known as an investment bank is known as an investment banker. However, it is self-evident that not everyone who works for an investment bank becomes an investment banker. Investment bankers’ services focus upon providing banking services, but they do so for businessmen, corporations, investors, and entrepreneurs, among others.
What do These Investment Bankers do?
One of their most essential functions is to assist their clients in raising cash in the primary and secondary markets by issuing and selling securities (debt and equity). They do this for businesses and, on occasion, governments.
Investment banks also offer strategic assistance in areas such as mergers and acquisitions, underwriting, brokerage services, asset management, and so on. Let’s take a closer look at the services that these investment bankers provide:
Investing in the Stock Market to Raise Capital :-
Every business must look to the outside world for funding at some point. This could be for the purpose of building factories or undertaking other large-scale projects to stimulate growth. Even the government seeks for methods to raise revenue in order to create motorways, airports, and other infrastructure. Debt and equity remain two of the most important sources of capital for these businesses.
-Using Debt to Raise Capital
Debt is one of the most common ways to raise funds in the stock market. Debt is raised in the stock market by issuing corporate bonds to investors. The corporation sells bond products to investors in this location. The corporation pays a fixed interest (yield) to investors in exchange for holding the bond.
When the bond’s term expires, the corporation repays the investors their initial capital investment. Companies and governments engage with investment bankers to issue bonds in this country. The investment bankers’ recommendations are based on their experience and research as investment bankers. These organizations receive advise on bond specifications such as how long the bond should be issued for, the yield it should pay out, and so on. Occasionally, the investment bank will purchase the entire bond issue and then resell it.
-Raising Capital Through Shared Ownership
Equity finance is still the most important source of capital in the market! Companies, like the one above, can use equity financing to raise funding when they are short on cash. Companies that are new to the market do so by making an Initial Public Offering (IPO).
Hiring investment bankers is one of the first phases in the process. Finally, when it comes to this, investment managers are process specialists! These investment banks assist the company in preparing a comprehensive prospectus that explains everything about the business to potential investors.
In addition, the investment banker is responsible for pricing the initial public offering (IPO). This is critical since a high-priced IPO may fail to attract investors. On the other side, it will be unfair to the promoters if the IPO prices are too low. As a result, investment bankers assist the company in determining the best price.
As we have seen, there is a significant danger that investors will be uninterested in the company if bonds or equities are issued. This is where the investment banks come in once more. They assume the risk by purchasing a fixed percentage of the shares or bonds offered in the event that the offering fails. In this scenario, investment bankers are also known as underwriters.
-Acquisitions and Mergers
Investment bankers play a critical role in advising their clients on mergers and acquisitions. In acquisitions, there are two sides: the company wanting to acquire another smaller firm and the company looking to acquire another larger company. The purchasing company is advised by the investment bankers on the fair value to be paid and the best structure for the transaction.
The investment bankers hired by the firm being purchased, on the other hand, advise their clients on what they should expect and a fair price. They assist them in determining whether or not they offer they have gotten is reasonable. This usually entails both parties going back and forth until they reach a mutually acceptable price. This occurs in the case of mergers as well. Before the protracted merger and acquisition really take place, there is usually a lot of planning and lengthy talks.
In conclusion :-
Investment banking is, as we all know, one of the most coveted professions. But, at the same time, we’ve been taught about the miseries of investment bankers working 100 hours a week to fulfill deadlines. At the very least, you now understand why.
When you consider the various tasks that an investment bank plays, the obligations that fall on their shoulders grow as well. However, this is not how an investment banker’s typical week goes. Let us know what you think about this article detailing what investment bankers perform in the comments section below. Good luck with your reading!